Does Innovation Stimulate Employment? A Firm-Level Analysis Using Comparable Micro-Data from Four European Countries

This paper studies the impact of process and product innovations introduced by firmson their employment growth. A model that relates employment growth to process innova-tions and to the growth of sales due to innovative and unchanged products is derived andestimated using a unique source of comparable firm-level data from France, Germany,Spain and the UK. Results for manufacturing show that, although process innovationtends to displace employment, compensation e ects are prevalent, and product innova-tion is associated with employment growth. In the service sector there is less evidence ofdisplacement e ects, and growth in sales of new products accounts for a non-negligibleproportion of employment growth. Overall the results are similar across countries, withsome interesting exceptions.